Considering that Africa has been going through a Leap-Frog era with the Telecom and Fintech boom in recent times, I was surprised to hear that an African colleague of mine did not believe Fintech had been disruptive to its economy. He explained that even as recently as 2010, 80% of the population were remarkably still unbanked, meaning there was little to nothing to disrupt.
Fast forward to 2018 and this has changed substantially.
A whopping $100 million has already been injected into Africa’s Fintech and mobile payments sector this year alone, with more still to come. Payments made online or through mobile expected to total a staggering $3 billion by 2020. Perhaps this is unsurprising, given that by 2016, approximately 220 Million consumers across the continent were using Mobile Wallet.
When a sector experiences such significant growth in such a short space of time it is not uncommon for there to be teething problems, and there are certain stumbling blocks which will need ironing out.
Notably, many payment providers do not inter-operate, which has made it difficult where payments need to be made across different countries. Fortunately, this space is being regulated to force payment providers to allow inter-operability moving forward.
Talking of moving forward, with the payments space becoming increasingly overcrowded, many startups in Africa are turning to Remittance and Lending as the key area to target. Remittance accounts for the highest percentage of foreign investment into Africa. According to The World Bank, remittances to the Middle East and North Africa grew 9.3 percent to $53 billion in 2017, whilst remittances to Sub-Saharan Africa accelerated 11.4 percent to $38 billion.
However, high remittance charges are also costing Africa billions of dollars and sub-Saharan Africa remains the most expensive part of the world to send money to, as treflected in the graph below.
Western Union holds roughly 12% of the market share for these transactions and charges almost 10% for remittances. If they were to halve this commission, somewhere in the region of $16 billion could be saved.
Taking into account that Africa currently pays the largest commissions for remittances into the continent, it comes as little surprise that startups are exploiting this huge inefficiency.
Such startups include Rwandan-based Mergims, which enables relatives outside of Africa to easily purchase the likes of electricity from their family home, rather than sending cash and incurring the relevant charges.
The online platform has since gained international recognition, coming fourth globally in the Rising Startups Awards from SWIFT. Together, Payments and Remittance make up around 50% of African startups, but Remittance still has some way to go before reaching its peak.
Cultural alignment can also be a key factor in achieving success and Fintech startups are no exception to this. Stokvel – the name given to community banking in South Africa – is largely used by those looking to save. In African communities, people often choose to save and lend as a community, rather than by opening individual accounts through formal banks.
This will usually involve members making a regular contribution of an agreed amount over a set period of time, at the end of which they will receive a one-off lump sum. This can then be used to cover all sorts of things, from purchasing essentials to making fresh investments, or even put to one side to bolster savings.
This behavioural principle opened the door for another forward-thinking startup, StokFella, to develop their innovative app, which was designed for creating and managing such communities. Interestingly, Stokvels are not solely restricted to lending and can serve to fund all manner of services that are necessary within a community, for example, health insurance.
It’s encouraging to see Fintechs embracing the notion that one cap doesn’t fit all. They are not just replicating and adapting existing business models, but are creating and moulding new ones that are tailored to values and customs of individual cultures.